'Worst may be over' for the UK economy, says new MPC member David Miles

The newest recruit to the Bank of England's Monetary Policy Committee has
claimed the worst of the UK recession could be over.

By Angela Monaghan

6:01AM BST 17 Apr 2009

Professor David Miles, who will replace David Blanchflower when he leaves the committee at the end of May, said the MPC's sweeping interest rate cuts, and Government measures to stimulate the economy, were starting to show some signs of success.

"Economic history teaches us that a combination of tax cuts, running large fiscal deficits, substantial cuts in interest rates and more quantitative easing is likely, with a certain time lag, to have a substantial impact on demand in the economy and it may well be that the worst of the recession may well be behind us," he said.

However, Prof Miles cautioned that this was "not a confident prediction but a judgement about what may be the case".

He gave little detail on specific examples of where improvement could be seen, but said homeowners were now starting to feel the benefit of lower interest rates, and said more generally that it would take time for the full effect of measures to feed through to the economy.

"If you look at the Government's announcement on fiscal policy, the bringing forward of next year's spending to this year and the cut in VAT have only begun to have an impact within the last few months," he told the Western Mail newspaper.

Prof Miles, currently chief UK economist at Morgan Stanley and a visiting professor at Imperial College London, said there were tentative signs that the Bank of England's policy of pumping up to £75bn of newly created money into the economy – quantitative easing - was beginning to work. "This forms part of a policy response from the central bank to address the issue and the initial signs are mildly encouraging."

The Bank's governor, Mervyn King, has stated on a number of occasions that banks' reluctance to lend to households and businesses is one of the biggest threats to the UK economy but yesterday Prof Miles said there was evidence that quantitative easing was improving corporate credit conditions.

"Again it's early days but the early signs are that it's having an impact and the hope is this will have an impact on the cost of corporate debt and its availability, as the money flows through the system, making it easier for banks to lend," he said.

Elsewhere, mortgage approval data has signalled modest improvement, and the latest Purchasing Managers' Indices for the manufacturing and services sectors suggested that the pace of decline is starting to slow.